The prevention of and fight against organised crime in the financial sector

This Communication aims to identify those areas where new initiatives may be needed to strengthen the fight against organised financial crime. This covers a range of illegal activities, including money laundering, financial fraud and counterfeiting of the Euro when committed by criminal organisations. Organised financial crime undermines legitimate economic actors and strengthens the shadow economy, thus diminishing economic growth and public resources. The fight against organised financial crime is important since reducing such crime has a broader impact on the fight against organised crime generally. Given that money is the lifeblood of organised crime, removing access by organised crime groups to money is bound to erode their power base.

PROPOSAL

Communication from the Commission to the Council and the European Parliament on the prevention of and fight against organised crime in the financial sector [COM(2004) 262 final - Not published in the Official Journal].

SUMMARY

The European Commission intends to develop and enhance a series of measures to prevent and fight either organised financial crime or general organised crime which influences organised financial crime.

Money laundering

The fight against money laundering has been a top political priority of the European Union (EU) for a number of years. The need to protect the financial system from misuse and the fear that the application of radically different measures in this area could prejudice the proper functioning of the Internal Market provided the European Commission with the legal basis under the Treaty for proposing Community legislation. Current legislation is basically composed of two Community Directives adopted in 1991 and 2001.

The Commission has announced its intention of tabling a proposal for a third Directive determining the changes to be made to the 1991 and 2001 Directives needed to take account of the revised 40 FATF Recommendations.

The Commission has already presented a proposal for a Regulation on the prevention of money laundering by means of customs cooperation. The proposal aims to set up a uniform approach to cash control based on a declaration system for amounts greater than EUR 15 000. It supplements the money-laundering Directives which govern, inter alia, the control of financial resources moving via financial institutions. There is indeed a risk that this control mechanism could be undermined by large-scale movements of cash which are not uniformly subject to control in the Community.

The Commission also proposes:

case tracking: Member States are encouraged to develop systems capable of tracking data provided by entities subject to reporting requirements;

the establishment of asset recovery bodies at national level: the Commission supports Europol's efforts to set up an "Asset Seizure Knowledge Centre" to facilitate the identification of criminal assets in the course of major criminal investigations conducted by Member States;

criminalising gross negligence resulting in a failure to comply with reporting obligations;

a study on the feasibility of Member States' establishing a database of currency exchange transactions which could be accessed by police and judicial authorities in money-laundering investigations;

giving consideration to an appropriate mechanism to facilitate an EU-wide response where financial havens are considered to represent a significant money laundering threat;

promoting rapid information exchange between law enforcement, FIUs and other organisations concerned with a view to detecting underground bank transactions, which generally leave no paper trail;

reinforcing Europol's anti-money-laundering efforts by implementing the computerised evaluation of the Suspicious Transaction Reports sent to their analysis system (SUSTRANS);

pursuing the FIU-NET project, which aims to link up financial intelligence units.

Fraud

Non-cash means of payment represent an important source of illicit revenue for organised crime groups through fraud and counterfeiting.

The Commission will:

publish in 2004 a report on progress achieved under the three-year Action Plan to prevent fraud. This plan was adopted in 2001 and aims to foster a more coherent approach to prevention in this field;

propose further initiatives. In particular, it will explore the possibility of drafting clear guidelines as to how public and private agencies may work together to combat fraud more effectively.

In addition to what has recently been achieved in this field, there is a need to explore the establishment of a common and comprehensive EC concept of fiscal fraud and the harmonisation of penal sanctions. The Commission intends to launch a comparative study of the respective definitions of fiscal fraud and their penal consequences.

Fraud affecting the financial interests of the Community also represents an important source of illicit revenue. The Community's own resources suffer huge losses as a result. To combat this problem, the Commission recommends:

enhanced cooperation between Member States, the Commission (OLAF), Eurojust and possibly Europol;

the creation of an independent European Public Prosecutor responsible for detecting and prosecuting offences directed against the Community's financial interests.

Transparency of certain legal entities

There is a general need to enhance transparency and integrity standards in public administrations and private entities to prevent and discourage financial crime in general and thus contribute to the more effective tracing of organised financial crime.

The Commission proposes:

speeding up work on the role of independent non-executive or supervisory directors;

carrying out cost benefit analyses in connection with the enhancement of transparency measures to help combat organised financial crime;

exploring new ways of preventing and combating financial malpractice, with a particular focus, inter alia, on companies' use of complex and opaque structures, subsidiaries and other special-purpose vehicles to commit and to conceal malpractices in the financial and taxation fields. One of the objectives could be to recommend a comprehensive and consistent EU approach for tackling such malpractices.

The Commission also intends to promote:

the development of cooperation between the private and public sectors, not only via the EU Forum for the Prevention of Organised Crime but also by encouraging greater research work in this area. It will also explore the scope for coordination between law enforcement/government officials and representatives of the financial and other business communities affected by organised financial crime.

the elaboration of a common policy on the development and implementation of financial investigations as an investigative technique. Standard rules for financial investigation bodies throughout the EU should also be considered, notably in connection with funding, training requirements and cooperation mechanisms of such bodies;

the setting of minimum standards for national criminal intelligence systems, in order to facilitate effective strategic and tactical analysis, forward planning and operations. To this end, the Commission proposes setting up a working group of representatives of the European Commission (including OLAF), Europol and Eurojust;

further work on a mechanism to facilitate identification of legislative proposals which may inadvertently create opportunities for crime. At a subsequent stage, the Commission may if need be extend this form of crime risk assessment to areas beyond the legislative process. This could include procedures and processes surrounding such areas as insurance claim forms or credit card applications with a view to reducing opportunities for fraud;

a full evaluation of the effectiveness and impact of policy and measures in the fight against organised financial crime in the EU in 2005. The purpose of these evaluation missions will be to identify best practice and areas where additional measures in the fight against organised financial crime could be taken;

continued seminars, workshops and studies under its AGIS funding programme;

enhancing external action in the fight against organised financial crime, via technical assistance programmes for third countries and by entering into agreements with them (such as the agreement on mutual legal assistance in criminal justice concluded with the United States on 25 June 2003).

Background

This Communication addresses the problem of organised crime in the financial sector. The focus is therefore on non-violent crime generally involving abuse of financial and/or payment systems and resulting in illicit financial gain.

The European Commission sees the fight against organised financial crime as a core priority over the coming years, as financial crime is often wrongly perceived as a "victimless" crime. While organised financial crime may not always impact directly on individuals, the reality is that its broader social impact is considerable in terms of lost revenues, loss of reputation and the fall in public standards.